Buoyed by EU vote, Italy's Renzi seeks change in Brussels

ROME (Reuters) - It has been a long time since an Italian leader went to Brussels with as strong a hand as the one held by Prime Minister Matteo Renzi, whose triumph in last month's European elections left him with a big say on who should head the EU Commission.

Winning the biggest victory for any Italian government since the 1950s four months after deposing his cautious predecessor Enrico Letta in a party coup, Renzi was one of the few leaders in Europe to defy the rise of eurosceptic parties and emerge stronger from the vote on May 25.

The result gave the centre-left former mayor of Florence a political legitimacy that neither Letta nor his technocrat predecessor Mario Monti enjoyed. That will allow him to press for an easing in the austerity policies which have dominated Europe's response to the financial crisis.

As EU leaders prepare to meet on June 26-27 to decide who will head the European Commission, Britain's campaign to stop former Luxembourg Prime Minister Jean-Claude Juncker has given Renzi leverage to make Italy's voice count.

In office only since February, Renzi has yet to establish much of a track record in Brussels negotiations but he knows that with Italy about to assume the revolving presidency of the European Union for six months, this is his moment.

"The election result opened a new political cycle," Simona Bonafe, a close Renzi aide who won a seat in the European Parliament, told Reuters.

"We're going to be demanding about policy. We can't accept austerity policies anymore. We'll see how we can change them."

EU officials have cautioned that there was no question of changing the bloc's budget discipline rules, only of making greater use of existing flexibility on deficit reduction offered to countries carrying out growth-enhancing economic reforms.

With Italy struggling to pull out of five years of on-off recession and youth unemployment at more than 40 percent, Renzi has insisted that more budget austerity on its own will simply fuel voter anger and social unrest.

The rise of anti-system parties like the National Front in France, the UK Independence Party in Britain and the 5-Star Movement in Italy, which despite Renzi's success remains the country's second-biggest party, made clear that millions of voters across Europe feel the same way.

A fast-talking 39-year-old with little obvious affinity with a veteran Brussels dealmaker like Juncker, Renzi has so far said only that the former Luxembourg prime minister who chaired euro zone finance ministers was one of several possible candidates.

Nonetheless he has a keen sense of political reality and little interest in ideological arguments of principle. Although Britain has pushed hard to rule out Juncker as an arch-federalist, as an outsider to the single currency, London may have little to offer Italy in the areas that matter.

So Renzi is looking to German Chancellor Angela Merkel and European Council President Herman Van Rompuy to deliver a change in the euro zone's policy mix in return for his acquiesence to Juncker.

"He respects power. If you have power or something to offer he'll listen, otherwise you don't count at all," said a senior parliamentarian from Renzi's Democratic Party, who spoke on condition of anonymity.

"That's the way he did it in Florence. That's how he does it in Rome, and that's how he'll do it in Europe."

CONSENSUS

Renzi's state secretary in charge of European affairs, Sandro Gozi, said a meeting with Van Rompuy on Wednesday would be a vital step towards reaching a decision on the Commission president.

Italy had not yet decided which candidate to back as Commission president but wanted to avoid an open split.

"Obviously the best way for us to begin our presidency is with a solution that has as broad a consensus as possible behind it," he told Reuters.

All that suggests Renzi may not oppose Juncker, who has the backing of euro zone heavyweights Germany and France, but wants concessions for his acceptance.

Britain would need the support of countries representing 38 percent of the EU's population to block Juncker if it came to a rare summit vote, putting Italy in a pivotal position.

"We want whoever becomes president of the Commission, including Juncker, to commit to political priorities of jobs, growth, energy and fundamental rights," Gozi said. "The broader the commitment, the happier we'll be."

While Italy's economy has been stagnant for more than a decade and its public debt is among the highest in the world, its budget deficit is just within EU limits and it insists it will respect the rules.

However it says after 182 billion euros ($246.5 billion)(145.22 billion pounds) of tax hikes and spending cuts in the past three years, a change of approach is needed with more room for spending on investment and research. Exemptions in those areas as well as more time to bring the structural deficit into balance have already been mooted.

Germany has signalled it is prepared to allow a generous interpretation of budget rules in exchange for serious structural reforms by states like Italy.

EU officials see Renzi as the best hope of enacting reforms vital to make the Italian economy more dynamic and keep the state solvent, if he can stay in office long enough, and as a potentially positive influence on France, the euro zone's other reform laggard.

Renzi has announced plans for new labour laws, cuts to taxes on business and sweeping reforms to parliament, the justice system and the notoriously inefficient public administration.

But he has only delivered a small part of his promises so far and his main policy achievement has been an income tax cut for around 10 million lower income workers.

Juncker, a central figure in the euro zone crisis as head of the Eurogroup of finance ministers, has also said the EU must focus more on jobs and growth.

But the details of any agreement remain unclear with the conservatives in Merkel's grand coalition government putting pressure on her not to give too much ground.